European stock markets closed modestly higher yesterday while Wall Street investors kept their powder dry as caution reigned on trading floors before Donald Trump’s speech to a joint session of Congress.
London, Frankfurt and Paris were up to 0.3% higher at the closing bell, while Wall Street was hovering a smidgen below Monday’s closing level after 12 record-breaking sessions.
In London, the FTSE 100 up 0.1% to 7,263.44 points; Frankfurt — DAX 30 up 0.1% to 11,834.41 points and Paris — CAC 40 up 0.3% to 4,858.58 points at the close yesterday.
Investors were “opting to sit on their hands ahead of Trump’s speech to Congress”, said Chris Beauchamp, chief market analyst at IG trading group. The US president hinted he would make a “big” announcement on infrastructure policy, raising hopes he will deliver on a key campaign promise.
Traders will also be looking for details of tax overhauls — another major pledge — which this month he said would be “phenomenal”.
“Markets might take a dim view,” said Simon MacAdam at Capital Economics, “if he focuses instead on other policy areas or uses the opportunity to bash the media again”. Other analysts also urged caution, saying any disappointment in Trump’s remarks could have big consequences for stock markets.
“The threat of today’s speech mirroring the inaugural address could trigger a tidal wave of risk aversion,” warned Lukman Otunuga at FXTM.
“Global markets have been somewhat patient and even resilient against the persistent Trump uncertainties, but the crack could start to show if nothing new is brought to the table,” he said.
Global markets and the dollar have largely surged since Trump’s election win in November on expectations his planned measures will fire the US economy and fuel inflation, prompting the Federal Reserve to raise interest rates.
But with the Dow on Monday hitting a record high for a 12th successive day, analysts say there is a fear the advance may have gone too far and investors are beginning to row back, with the dollar also feeling the pinch.
“President Trump’s big address naturally has attracted a lot of anticipation in markets,” said Greg McKenna, chief market strategist at AxiTrader.
“There is a strong chance that it could be the catalyst for the next leg higher for the US dollar, bonds and stocks,” McKenna said.”But there is also room for disappointment.”
The dollar got a shot in the arm Monday when the head of the Dallas Fed, Robert Kaplan, said he thought borrowing costs should be raised “sooner rather than later”. His comments fuelled speculation the Fed could hike rates as soon as next month.
But the US Commerce Department’s confirmation yesterday of disappointingly sluggish growth in 2016 seemed to go against that view, weighing on the greenback.
The final quarter of the year saw the economy expand by 1.9%, compared with analysts’ hopes for 2.1%. But forex traders said the dollar’s coming direction would mostly depend on what Trump says in Congress.
A logo is displayed on an interactive sculpture in the main atrium of the London Stock Exchange. The FTSE 100 closed up 0.1% to 7,263.44 points yesterday.
